Broker tips: IAG, Robert Wiseman, Robert Walters

6th Jul 2011 13:47

Analysts at AlphaValue downgraded IAG from overweight to underweight with a price target of €3, following the release of the airline's June passenger statistics.IAG saw a 2.3% annual increase in its passenger load factor in June to 81.7%. Also, traffic measured in revenue passenger kilometres rose 9.2%."Figures are compared to a 2010 basis which was affected by disruption at British Airways related to 14 days of strikes by cabin crews. IAG did not give restated growth rates but mentioned that the underlying revenue trend was in line with last month. The North America, Latin America & Caribbean and Asia/Pacific networks were buoyant with passenger traffic increases of 23.4%, 15.2% and 18.9% respectively," AlphaValue explained.AlphaValue also acknowledged that "traffic growth was lower but satisfactory in the European and Africa/Middle East networks (+5.2% and +9.7% respectively)". Domestic flights suffered from a drop in passenger traffic but was compensated by improvement in Europe.Commenting on the traffic figures analysts at Credit Suisse indicate that AIG has again, "confirmed underlying revenue trends remain intact," even if their 'comparables' have again been distorted by so-called 'base effects'. The most interesting aspect of their analysis note is their indication that good summer trading is the key to the company meeting their 2011 earnings before interest and tax forecast of €701m, which is 10% ahead of the current consensus forecast from Reuters. Even more importantly, they explain how they have, "gauged sentiment on the transatlantic over recent weeks from the US majors as well as the European flags and have been encouraged by confidence levels. Forward booking are reported as robust, with fuel surcharges/price rises sticking - the lag in passing on higher fuel prices may be instrumental in driving positive yields surprises in 2Q and 3Q." As well, the AF/Delta airlines tie-up is expected to reduce transatlantic capacity, thus buttressing pricing further. Lastly, they point out how IAG is now trading at a 2011E P/E multiple of 10.9x and an adjusted EV/EBITDAR [enterprise value/earnings before interest, tax, deprecation, amortisation and rent] multiple of 5.1x, compared to "normalised" 5Y averages of 11x and 8x respectively (FY12E 8.7x and 4.1x). They also highlight what, in their opinion, are the outfit´s highly attractive medium term free cash flow (FCF) generation prospects and improved strategic positioning.Credit Suisse currently has a recommendation of 'outperform' on shares of IAG, with a price target of 330p. Robert Wiseman may have to pay suppliers a higher milk price in the autumn but Panmure Gordon thinks this presents it with an opportunity to "recover costs from retailers."The broker ups its target price on stock to 320p from 260p."The market place remains competitive but given the recent increase in the raw milk price there appears to have an easing in the Middle Ground market which we regard as encouraging," said Panmure, which has a "hold" recommendation on the stock."The company should also benefit from further efficiency gains due to increased volumes supplied to the Co-Operative group which are due to commence in August."Nevertheless, Panmure thinks that any price recovery would be "hard won given the current retail environment."It notes that the shares trade at around 14.4 times current year earnings.The second quarter update from white-collar recruiter Robert Walters was an encouraging one, in the view of Merchant Securities, which remains bullish on the stock.All regions posted year-on-year (y-o-y) growth with Europe up 31% in constant currency, though the UK was "as expected, pretty flat although even here NFI [net fee income] growth was 5% y-o-y," Merchant's Ian Jermin notes."The group is on track to report NFI for the year of around £187m against our previous expectation of £185 but at this stage we are leaving earnings forecasts unchanged," Jermin advsed.The broker has a target price for the stock of 400p.That's higher than Panmure Gordon's price target of 379p, though both brokers agree that the shares are a "buy".Panmure Gordon said that the firm's top line growth in the first half was ahead of the broker's expectations, and there are "suggestions that European growth looks better than expected by some margin.""Growth continues to be driven by overseas expansion, with further progress expected and new office openings assisting expansion against a challenging UK environment, albeit that 75% of NFI is outside the UK," write Panmure analysts Paul Jones and Mike Allen. "All things being equal this should point towards full year numbers towards the top of the range, though with summer months notoriously quiet and uncertain macro signals we believe it may be early days yet," the analysts added.--jh